CHICAGO | Post Office Redevelopment

[ardecila]

Does Chicago really have any large Federal employers in the suburbs? I'm not aware of any.

[Chi-Sky21]

Yes, because i see NO PROBLEM with a large federal office situated right above a major expressway. Why not have a target just painted on the building?

[BraveNewWorld]

delete

[BraveNewWorld]

Originally Posted by SamInTheLoop

^ Yeah, this is just for the post office building itself. This is precisely what Sterling Bay does - only this is by far their largest project yet. The $500 mil. price tag quoted actually doesn't surpise me. Redevelopment (this does not necessarily mean any new construction, this word is also often used in the adaptive reuse/complete rehab sense) of a 2.7 mil sf building into modern office space - this is going to take an awful lot of work. But, to LVDW's point, $500 mil. is the approximate construction cost (maybe just slightly higher), than the 1.1-1.2 mil sf new office towers that are about to begin construction. So you have the cost basis difference for your rental rate advantage - however, at the same time, the new towers and projects like these (the gut rehab of older industrial and/or unique extra large floor plate structures) are not - for the most part (obviously there are some exceptions) - attracting the same types of tenants, with the latter attracting technology and mainly old-line consumer product corporations, and of course the former your traditional law, financial, professional and business services firms that typically anchor or otherwise locate in new Class A tower construction.

^^^ Sears - I guess anything is possible, but that would probably be the most unexciting large corporate relocation to downtown ever - a company that is in the midst of its painful, slow-motion and likely irreversible death spiral....

Funny how something can change overnight from being a pipe dream to a very real project. Super excited about this now. Sterling Bay is not only the perfect - but maybe also the only - developer that I have a high level of confidence in to take on this project. Hopefully Davies' actual involvement in the redevelopment is quite passive, and he just collects his negotiated return from his contribution of the property. Sterling Bay needs to completely run this show. Of course just talking about the actual Post Office building itself. Any new construction is still firmly in the "concept/pipe dream" category. However, when the redevelopment of the Post Office is completed and occupied, and generating a lot of activity and new energy into this corner of downtown that sorely needs it - large new construction on the adjacent parcels could be entirely feasible.

While the new highrises may seem like a pipe dream, this deal gives this whole project a certain level of credibility, that means this whole thing might be a legitimate proposal. The development it will be bringing to downtown alone is enough to get excited.

Bottom line, this is big news!

[hawainpanda]

To be clear, I'm very much hoping that the redevelopment of the post office is done, but also realized with this building offering 3 million sqft of new office space, it would basically mean that we can expect it to heavily compete with new office constructions in the future and probably decrease the chances of new office construction as well. I may be overthinking this, but I would rather Chicago get new office towers that can add to the chicago skyline.

[DonMendigo]

Originally Posted by hawainpanda

To be clear, I'm very much hoping that the redevelopment of the post office is done, but also realized with this building offering 3 million sqft of new office space, it would basically mean that we can expect it to heavily compete with new office constructions in the future and probably decrease the chances of new office construction as well. I may be overthinking this, but I would rather Chicago get new office towers that can add to the chicago skyline.

Got to disagree here. A development like this at this site would do a lot for Chicago. It pushes density/development/people in a new direction that really has potential. The area to the south/southwest of this is pretty underutilized and dying to be developed. Union station is right there. The blue line Clinton stop is right there. If anything, imagine how awesome it would be to see a highrise go up just to the east of the building and its canyon effect on the Chicago river looking south. That alone would be great.

The gaps in the loop/river north are extremely likely to get filled in with high rises eventually no matter what happens here. Plus, if I really can't see Walgreens pulling the trigger on anything downtown other than this venue. I just can't see them moving into a new skyscraper.

All of that said, it's always been my pipe dream that the post office gets redeveloped into a massive Chicago 1920s gangster themed casino.

[SamInTheLoop]

^^ To a certain extent some of that competition is inevitable (either direct and/or thru indirect market mechanisms), but see my post above re different types of tenants being attracted to historic adaptive re-use vs. trophy/class a new construction towers.....differences in target tenant set mean that these two different types of projects are not interchangeable.....they're far from direct substitutes, so competition overall is far from completely overlapping and direct...

^ Spot on regarding Walgreens not being a likely candidate to anchor (or for that matter completely occupy) a new tower - and it's not just Walgreens - it's really any company like Walgreens - large, old economy, publicly traded corporations - especially those in consumer products - and to some extent consumer services ex-financial as well - are just not good candidates in modern times to occupy expensive, brand new trophy/class a space - such corporations in aggregate just don't go for that type of expense these days, and their shareholders and wall st analysts (which is what really drives their strict cost controls) would largely frown at such 'lavish' expenditure for new real estate.....not to say there are not - and will not continue to be - exceptions to this 'rule' - there are always exceptions.....but in general, developers firmly realize that these types of companies are far from likely new tower anchors....

[jdcpamba]

To answer the poster's question about whether the federal government has any large offices in the suburbs, I believe the IRS has a decent sized presence by 355 and Butterfield Road.

[ChiTownWonder]

i don't think that i would want to see a megatall there anyway, for the sake of the skyline. it would stand out too much. yes the spire stands out too but at least its in the middle of the skyline not on the side like this one. i would love to see a supertall here though. maybe a 1200 footer and hopefully this could lead to a development in the south branch of the river and some taller buildings on south state street by the central station skyline, to sort of connect the two together.

[Ch.G, Ch.G]

Originally Posted by SamInTheLoop

^ Spot on regarding Walgreens not being a likely candidate to anchor (or for that matter completely occupy) a new tower - and it's not just Walgreens - it's really any company like Walgreens - large, old economy, publicly traded corporations - especially those in consumer products - and to some extent consumer services ex-financial as well - are just not good candidates in modern times to occupy expensive, brand new trophy/class a space - such corporations in aggregate just don't go for that type of expense these days, and their shareholders and wall st analysts (which is what really drives their strict cost controls) would largely frown at such 'lavish' expenditure for new real estate.....not to say there are not - and will not continue to be - exceptions to this 'rule' - there are always exceptions.....but in general, developers firmly realize that these types of companies are far from likely new tower anchors....

You're probably right. I know the young and talented prefer the lifestyle an urban location would afford but I don't know that there are enough of them leaving or shying away from Walgreens to necessitate a move downtown, though I do think it would help them in the long-run. Hopefully, we're wrong.

[LouisVanDerWright]

Originally Posted by Ch.G, Ch.G

You're probably right. I know the young and talented prefer the lifestyle an urban location would afford but I don't know that there are enough of them leaving or shying away from Walgreens to necessitate a move downtown, though I do think it would help them in the long-run. Hopefully, we're wrong.

I think you might be misreading his post. He is not saying walgreens won't move downtown, he is saying they would never occupy a brand new tower because that simply doesn't make sense for them. They would be an excellent candidate to occupy the old post office or an older office building like the Sears. They just will never be willing to pay the obscene rents for a new construction class A+ building because their shareholders would revolt. The margins huge companies like walgreens operates on are surprisingly thin and paying 50% more rent on 1 million SF of office adds up quick.

[ardecila]

Walgreen shareholders are already threatening revolt...

http://www.chicagobusiness.com/artic...re-at-walgreen

[Zapatan]

I guess that's not really good news for this project

[SamInTheLoop]

^ No, this is not necessarily bad news at all for the project.....this stuff seems to, for whatever reason, generate loads of suspect conclusions and confusion.....

[wierdaaron]

Not a business finance expert but the way Walgreens shareholders boss around the company like panicked chicken littles seems unusual to me.

Anyway, Walgreens and the post office have only recently crossed radars. I get they'd be just fine without a signature tenant like that, just as Merch survives (thrives, now) without it being known for just one tenant. I can't think of any huge companies who might want to move there, but can think of many smaller companies who'd jump on it.

What will be interesting to see is if that area, the "near west loop" (between the river and kennedy) starts connecting with the "actual west loop" (west of the kennedy, aka Sterling Bayland). The Post Office/Union Station/Olgilve area is kind of a weird disconnected chunk of city that separates several neighborhoods and keeps them from flowing together. Pumping some life into the Post Office could have a big impact on the city's ecology as a whole.

This all makes me wonder why the Sears Tower area has been so bland, since that's an awful lot of people in one square block who you'd think would support a local scene a lot more vibrant than the one it has now. Everything around there seems to cater to it more as a tourist destination than the workplace of umpteen thousand high paid professionals. Maybe the people who work there don't go outside for lunch because they're three elevators away from the street.

[ardecila]

Yeah the southwest Loop is still kinda sleepy. My only theory is that Madison and Washington have the highest pedestrian traffic because of the historical presence of Daley Plaza, Marshall Fields, and now Millennium Park (which all draw suburbanites from the Metra stations). All other east-west streets are kinda service-oriented, none moreso than Van Buren.

It's also the downtown manifestation of the North Side favored quarter... With few exceptions the north side is prosperous and successful out to Lake Forest and Barrington while the South Side is pretty poor-to-middle class out to New Lenox and Peotone. Recent development in the South Loop, University Village, and Hyde Park have been glimmers of hope but southward gentrification is still very much in its infancy.

[untitledreality]

Originally Posted by wierdaaron

This all makes me wonder why the Sears Tower area has been so bland.

No one lives around there. For the most part, the SW corner of the loop is an urban office park.

[wierdaaron]

^True. River North probably took off because there was a crush of residents and workers. I guess that area might change eventually with that new development on Van Buren and Wells.

[rlw777]

Originally Posted by ardecila

Yeah the southwest Loop is still kinda sleepy. My only theory is that Madison and Washington have the highest pedestrian traffic because of the historical presence of Daley Plaza, Marshall Fields, and now Millennium Park (which all draw suburbanites from the Metra stations). All other east-west streets are kinda service-oriented, none moreso than Van Buren.

It's also the downtown manifestation of the North Side favored quarter... With few exceptions the north side is prosperous and successful out to Lake Forest and Barrington while the South Side is pretty poor-to-middle class out to New Lenox and Peotone. Recent development in the South Loop, University Village, and Hyde Park have been glimmers of hope but southward gentrification is still very much in its infancy.

Southwest loop is less attractive for many reasons.

1) the rail yard
2) electrical station across from river city
2) poor public transit
3) poor integration to the street grid (I am looking at you dearborn park)
4) the Freeway

Just doing something about the rail yard (perhaps stacking several of those lines underground to allow room for building over top) and building a new metra station there could set off some real development in the south loop and perhaps encourage Davies to build big at old main.

[LouisVanDerWright]

Originally Posted by Zapatan

I guess that's not really good news for this project

Not necessarily, it could actually be good news for the Walgreens rumor. All that article is saying is that Walgreens shareholders are demanding a shakeup of business practices and the management team is scrambling to deliver on those demands. That could indicate that this rumor is one of those "big shakeups" they plan to deliver to their shareholders. They could be planning to take significantly less space with a much high density and thereby cut costs with lower RE costs.